Your paycheck comes in. Your checking account is flush with cash. You have all of these great plans — you’re going to get your bills paid or you’re going to start chopping down that credit card debt.
But it’s Friday night, that cash is sitting there, and you want to do something with it. You want to have a little fun, or there’s that cool new thing you’ve been reading about. Everything looks so tempting when you have that money in hand, so you spend. A few days later, you wonder where all the money went, or if what you bought was really worth it.
Then, a week or two later, you repeat the cycle.
If money is burning a hole in your pocket every payday, there are a few things you can do to keep from waking up on Monday wondering where all the money went. If you have some extra cash, here’s what to do with it.
What to do if money is always burning a hole in your pocket
1. Think differently about little expenses
The first and most important thing you can do to keep money from burning a hole in your pocket is to think about your expenses a little differently. In short, start spending time thinking about your expenses from a month ago.
Go dig out the previous month’s credit card statement or your bank statement. If you usually operate in cash, start hanging onto receipts so you can look at them.
Now, ask yourself honestly: for each one of those expenses, do you even really remember what that was? If you don’t, it doesn’t give you much value for your money. If you do remember, ask yourself honestly whether or not you’re still glad you spent that money.
It’s OK to say “yes, that was good” to some of them, but if you’re being honest, a lot of them are going to leave you with a “no, that wasn’t a good move” feeling. That’s not a bad thing, either. What you’re doing right now is training your mind to have a better sense as to what things actually matter to you.
Get in the habit of doing this regularly. Whenever a bank statement or credit card statement comes in, go through each of the items on it and ask yourself, “Do I even remember this? And if I do, do I regret it?” If you don’t remember it or regret it, think for a moment about that expense and how it was just a waste of money. You’re building a better personal “money sense” for yourself every time you do this.
2. Start automating your savings
Another aspect of this problem of money burning a hole in your pocket is the sheer temptation of money sitting there that you can spend. In your more thoughtful moments, you can see that the money should be used better, but when it’s just sitting there burning a hole in your pocket, you want to spend it and rational thinking just isn’t going to cut it.
If that sounds like you. start automating your savings. Open up a new savings account at another bank, one you can’t easily access, and then set up an automatic transfer to pull some money from your checking account into that savings account the day after each paycheck arrives. Get that money out of sight and out of mind, and then treat it like an emergency fund. Make it hard to get, so that you only grab it in an emergency or after some careful consideration.
That’s just one use of technology for helping you with your money. There are also tools that can help you evaluate your spending and set goals quite easily from your smartphone.
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3. Set achievable financial goals
You might also want to consider other uses for that money burning a hole in your pocket beyond just an emergency fund. What are your financial goals? If you’ve got some extra cash, what can you do with it that’s in line with what you want out of life?
Do you want to own a home someday? Do you want to just get free from debt? Maybe you want to buy a decent car that runs well?
Those are all realistic goals for most people if they stick to them. Not only that, having a clear central goal can be inspirational, making it feel like less of a sacrifice to be putting money aside regularly for it.
A good goal is a SMART goal: it’s specific, measurable, achievable, relevant, and time-limited. Saying “I want to have good credit, no high-interest debt and $5,000 saved for a house down payment in five years” is a great SMART goal, for example.
View that money as “spending.” You’re “spending” $50 this week — taken automatically out of your checking account into that separate savings account — on that house down payment. You’re spending it on an extra credit card payment. What’s the reward? It’s peace of mind, less stress and a brighter financial future.
Don’t worry too much about only having the best goal. Whether you save money or pay down debt, you are still improving your net worth, which is just the value of everything you own minus your debts. As long as your net worth is improving, you’re improving your financial situation, and the better your financial situation is, the easier it is to achieve any goal you may have.
4. Invest your money
If you don’t have any immediate financial goals, consider investing your money for the long term. The truth is that all of us have at least one big goal that we all share: retirement. All of us want to be able to live out our later years in some comfort without having to work unless we want to. That’s what investing for retirement is all about.
Retirement investing is like giving your future self spending money. Instead of spending money on stuff you’ll forget or regret right now, put some of that aside in a retirement account so that your older self will have spending money on things they’ll care deeply about. You can watch your money vanish on something forgettable, or you can ensure that your older self will be able to go on a road trip to visit a friend or see the grandkids. Take care of your old self now while it’s easy, and just sacrifice the forgettable stuff to do it.
The best part is that retirement investment is pretty automatic — if you have a workplace retirement plan, it can come straight out of your paycheck before you ever even see it. Out of sight, out of mind. It’s also hard to access before retirement, so impulses won’t get you in trouble, either. Even better, some employers will match your contributions, multiplying your money.
If you don’t have a workplace retirement account, you can set up a Roth IRA on your own to do the same thing. Some employers will even help you set up an automatic contribution directly from your paycheck so, again, you never touch that money.
5. Reward yourself sometimes
This isn’t the “no more fun” plan. You should reward yourself sometimes. However, you want to make sure that those rewards are ones you won’t forget in a month or won’t regret in a month. Those are the things you want to cut out of your life, not the fulfilling things.
It will be tempting to reward yourself, particularly as you begin to see positive progress on turning your finances around a little. Just make sure of two things.
First, choose rewards that are actually memorable and meaningful to you. Don’t reward yourself with things you’ll quickly forget or regret.
Second, don’t bury yourself in rewards. Spread them out a little bit, so that each one has a little bit of anticipation to go along with it. Part of the fun of a splurge is to see it coming ahead of you on the calendar. Instead of blowing it all tonight, decide “I’m going to go buy that thing on Tuesday, and spend the time until then shopping around for the best price before I buy.” Giving yourself a couple of days to anticipate and shop around is enjoyable itself, and then you’ll have the item anyway. Plus, if it’s a bad idea, those few days will give you a bit of time to talk yourself out of it. If this idea really clicks for you, consider using the 30-day rule to get a lot of value from that reflection and anticipation time.